As a seasoned crypto investor with several years of experience under my belt, I’ve learned to pay close attention to on-chain indicators like the Bitcoin Puell Multiple when making investment decisions. The recent drop in this metric to 0.8, which indicates that miners are currently earning less than the yearly average, is a bullish sign for me.
An analyst who specializes in numbers (a “quant”) has noted that a widely used on-chain signal for Bitcoin suggests it may be due for a price increase.
Bitcoin Puell Multiple Has Observed A Plunge Recently
As a researcher studying Bitcoin’s market dynamics, I’d like to draw your attention to the current status of the Puell Multiple indicator. This on-chain metric, which is calculated as the ratio of miners’ daily revenue to the 365-day moving average (MA) of that same figure, is now signaling a “safe to buy” condition. In simpler terms, this means that the current Bitcoin price level is relatively lower than the average miner revenue over the past year, making it potentially attractive for investors.
As a crypto investor, I’d describe it this way: The income I’m referring to is the earnings made by these chain validators through the process of mining on the network, which involves solving blocks. The incentives they receive for their efforts remain consistent in terms of Bitcoin value and are doled out at a steady rate.
In this case, the sole factor influencing the revenue of this particular group is the exchange rate between the cryptocurrency and the US dollar. Consequently, miners experience an increase in earnings as the value of the cryptocurrency rises, but their revenues decrease with a drop in price.
At elevated prices, miners might feel compelled to offload their holdings, contributing to the market’s downward trend. When the Puell Multiple exhibits a substantial value (meaning miners are currently making much higher profits than the yearly average), it’s generally believed that the asset is overpriced.
In a similar vein, miners might view cryptocurrencies like Bitcoin as being undervalued if they generate fewer profits than usual. They could opt to keep the mined coins and wait for more favorable market circumstances before selling them.
Here’s a chart illustrating the historical development of Bitcoin’s Puell Multiple trend:
The Bitcoin Puell Multiple mirrored Bitcoin’s price surge in 2023 and the initial part of this year, as shown in the graph above.
I’ve noticed an unexpected drop in the indicator’s value lately. Currently, it stands at 0.8, implying that mining productivity has fallen below the annual average.
The Bitcoin price hasn’t seen any plunges of a similar scale, though, so why has the indicator plunged? As mentioned before, the BTC block rewards normally stay constant, but there is one exception.
As a financial analyst, I would describe it this way: I analyze Bitcoin’s monetary policy, and one of its unique features is the occurrence of special events called Halvings, happening approximately every four years. During these Halvings, there is a significant change in the mining rewards’ value. To be precise, these rewards are reduced by half during these events.
During the Halvings, these modifications take effect, whereas they maintain a steady state throughout the ensuing four-year span between such occurrences.
As an analyst, I’ve observed that the most recent halving event for the asset took place earlier this month. Consequently, the Puell Multiple, which is an indicator of the market sentiment based on the relationship between the price and the mining reward, has retreated into a potentially bullish zone for the asset.
The quant points out that in the years 2012, 2016, and 2019, when the ratio approached similar figures, the market usually paused for a respite before continuing its uptrend.
BTC Price
I’ve observed Bitcoin’s price behavior once again. Yesterday, it managed to climb above the $64,000 mark, but unfortunately, it couldn’t sustain that growth and has now retreated back to $61,300.
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2024-05-01 00:41